F-1 1 dp14632_f1.htm FORM F-1

 
As filed with the Securities and Exchange Commission on September 3, 2009
Registration No. 333-    


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Banco Santander (Brasil) S.A.
(Exact name of Registrant as specified in its charter)
 
Not Applicable
 
(Translation of Registrant’s name into English)
 
Federative Republic of Brazil
6029
Not Applicable
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)

Rua Amador Bueno, 474
São Paulo, SP 04752-005
Federative Republic of Brazil
(55 11) 3174-8589
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Banco Santander, S.A.
New York Branch
45 E. 53rd Street
New York, New York 10022
Attn: James H. Bathon, Chief Legal Officer
(212) 350-3500
 (Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:
Nicholas A. Kronfeld
Manuel Garciadiaz
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, N.Y. 10017
Phone:  (212) 450-4000
Fax:  (212) 450-4800
 
Andrew B. Jánszky
Shearman & Sterling LLP
Avenida Brigadeiro Faria Lima, 3400
04538-132 São Paulo – SP Brazil
Phone:  (55 11) 3702-2202
Fax:  (55 11) 3702-2224

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE
Title Of Each Class
Of Securities To Be Registered
Proposed Maximum Aggregate Offering Price(2)(3)
Amount Of Registration Fee
Units(1)
$200,000,000
$11,160
Common shares, without par value
   
Preferred shares, without par value
   
 
(1)      Each unit represents initially 47.83 subscription receipts of common shares, 7.17 common shares, 43.48 subscription receipts of preferred shares, and 6.52 preferred shares and, after conversion of the subscription receipts, 55 common shares, without par value, and 50 preferred shares, without par value. A separate Registration Statement on Form F-6 (File No. 333-              ) was filed on                              and declared effective thereafter. The Registration Statement on Form F-6 relates to the registration of American depositary shares, or “ADSs”, evidenced by the American depositary receipts issuable upon deposit of the units registered hereby. Each ADS represents one unit.
(2)      Includes units to be offered outside the United States and units subject to the over-allotment option granted to the underwriters but which may be resold in the United States in transactions requiring registration under the Securities Act of 1933. A portion of the units will be represented by ADSs.
(3)      Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


 
 

 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

Subject to Completion
Preliminary Prospectus dated September 3, 2009

PROSPECTUS
 
Units
Banco Santander (Brasil) S.A.
(incorporated in the Federative Republic of Brazil)
 
including units in the form of American depositary shares
 


 

We are offering a total of           units, each of which represents 55 common shares, without par value, and 50 preferred shares, without par value, of Banco Santander (Brasil) S.A.  Until the approval of our capital increase by the Central Bank of Brazil, which is expected to occur promptly after the closing of this offering, the units will represent a combination of common and preferred shares and subscription receipts for common and preferred shares.  See “The Offering”. We are offering the units in a global offering, which consists of an international offering in the United States and other countries outside of Brazil and a concurrent offering of units in Brazil. In the international offering, units are being offered directly or in the form of American depositary shares, or “ADSs”, each of which represents one unit. The offering of the ADSs is being underwritten by the international underwriters named in this prospectus. The units purchased by investors outside Brazil will be settled in Brazil and paid for in reais, and underwritten by the Brazilian underwriters named elsewhere in this prospectus. The Brazilian offering is being underwritten by the Brazilian underwriters. The closings of the international and Brazilian offerings are conditioned upon each other.
 
Prior to this offering, no public market existed for the units and ADSs. The initial public offering price of the ADSs is expected to be between U.S.$      and U.S.$      per ADS and between R$        and R$         per unit.  After pricing of this offering, we expect that the ADSs will trade on the New York Stock Exchange under the symbol “   ” and the units will trade on the BM&FBOVESPA S.A. — Bolsa de Valores, Mercadorias e Futuros, or BM&FBOVESPA, under the symbol “SANB11”.
 
This global offering will be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM”. Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
Investing in the units and ADSs involves risks. See “Risk Factors” beginning on page 23 of this prospectus.

 
Per ADS
 
Total
Public offering price
U.S.$
 
U.S.$
Underwriting discounts and commissions
U.S.$
 
U.S.$
Proceeds, before expenses, to us
U.S.$
 
U.S.$

 
The international underwriters may also purchase up to an additional          ADSs from us within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the international offering. The Brazilian underwriters may also purchase up to an additional        units from us within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the Brazilian offering.
 
The units and ADSs will be ready for delivery on or about           , 2009.
 

 
Global Coordinators and Joint Bookrunners
 
Santander Investment
 
Credit Suisse
Joint Bookrunners
 
BofA Merrill Lynch
 
UBS Investment Bank
 
 

 
The date of this prospectus is                , 2009.
 

 
 
Page
ii
1
23
33
34
35
39
40
41
42
51
57
77
133
140
172
198
217
219
222
235
244
248
256
267
268
268
269
270
 
 

 
In this prospectus, the terms “Santander Brasil”, the “Santander Brasil Group”, the “Bank”, “we”, “us”, “our” and “our company” mean Banco Santander (Brasil) S.A. and its consolidated subsidiaries (including, as from August 30, 2008, the entities of Banco Real), unless otherwise indicated. References to “Banco Real” mean Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. and their respective consolidated subsidiaries, unless otherwise indicated. References to “Banespa” mean Banco do Estado de São Paulo S.A. – Banespa, one of our predecessor entities. The terms “Santander Spain” and “our parent” mean Banco Santander, S.A. References to “Santander Group” or “Grupo Santander” mean the worldwide operations of the Santander Spain conglomerate, as indirectly controlled by Santander Spain and its consolidated subsidiaries, including Santander Brasil.

 
You should rely only on the information contained in this prospectus. We and the international underwriters have not authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. Neither Santander Brasil nor the international underwriters are making an offer to sell the units or ADSs in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the units or ADSs. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
 

 
 

 
This prospectus is being used in connection with the offering of units, including units in the form of ADSs, in the United States and other countries outside Brazil.
 
This offering of units and ADSs is being made in the United States and elsewhere outside Brazil solely on the basis of the information contained in this prospectus. We are also offering units in Brazil using a Portuguese-language prospectus. The Brazilian prospectus, which has been filed with the CVM, is in a format different from that of this prospectus and contains information not generally included in documents such as this prospectus.
 
No offer or sale of ADSs may be made to the public in Brazil except in circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations.

 
 
All references herein to the “real”, “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars”, “dollars” or “U.S.$” are to United States dollars. All references to the “euro”, “euros” or “€” are to the common legal currency of the member states participating in the European Economic and Monetary Union. See “Exchange Rates” for information regarding exchange rates for the Brazilian currency since 2004.
 
Solely for the convenience of the reader, we have translated certain amounts included in “Summary Financial and Operating Data”, “Dilution”, “Capitalization”, “Selected Financial and Operating Data” and elsewhere in this prospectus from reais into U.S. dollars using the exchange rate as reported by the Central Bank of Brazil, or “Central Bank”, as of June 30, 2009 of R$1.9516 to U.S.$1.00 or the indicated dates (subject to rounding adjustments). These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate as of that or any other date. In addition, translations should not be construed as representations that the real amounts represent or have been or could be converted into U.S. dollars as of that or any other date.
 
Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
 
Financial Statements
 
We maintain our books and records in reais. Our consolidated financial statements at and for each of the years ended December 31, 2008 and 2007 have been audited, as stated in the report appearing herein, and are included in this prospectus. Our unaudited consolidated interim financial statements at June 30, 2009 and for the six months ended June 30, 2009 and 2008 are also included in this prospectus.  These financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, or “IFRS”. In addition, our consolidated financial statements include the results of Banco Real as from August 30, 2008. Balance sheet figures as of June 30, 2008 appearing in this document were derived from our unaudited consolidated interim balance sheet as of June 30, 2008.
 
On August 29, 2008, the Santander Group made a capital contribution to us of its shares of Banco Real and the minority shareholders of Banco Real exchanged their shares of Banco Real for shares of Santander Brasil (incorporação de ações).  As a result, Banco Real became our wholly-owned subsidiary. As a consequence of this share exchange transaction, one of the key factors to be considered when analyzing our financial condition and results of operations at and for the years ended December 31, 2008 and 2007 is the consolidation of the entities of Banco Real in our financial statements since August 30, 2008. The impact of the consolidation of Banco Real in the last four months of 2008 is so substantial that it makes our results of operations for 2008 not comparable to those of 2007. In order to analyze the organic developments in our business obscured by the effect of the Banco Real
 
 
 
acquisition, management uses and we present in this prospectus certain 2008 financial information excluding the results of Banco Real. Banco Real was our wholly-owned subsidiary during the last four months of 2008 and this presentation is intended only to subtract from our reported results for 2008 the amounts contributed by Banco Real. This information does not purport to represent what our results of operations would have been had we not acquired Banco Real. We have not adjusted our reported results for any expenses incurred in 2008 in connection with the acquisition of Banco Real or for any revenue synergies. Management believes that any such additional expense or revenue was not material.
 
The combined financial statements of Banco Real at and for the year ended December 31, 2007 and the income statement for period from January 1 to August 29, 2008 have been audited, as stated in the report appearing herein, and are included in this prospectus. The unaudited combined interim financial statements of Banco Real for the for the period from January 1 to August 29, 2007 are included in this prospectus for comparative purposes. These financial statements are prepared in accordance with IFRS.
 
We have included in this prospectus selected financial data for the Bank which have been derived from unaudited financial statements at and for the years ended December 31, 2006, 2005 and 2004 prepared in accordance with accounting practices derived from the Brazilian Corporate Law and standards of the Brazilian Monetary Council and the Central Bank or “Brazilian GAAP”. The Bank was formed as a result of the reorganization of the Brazilian banking interests of the Santander Group in 2006. Prior to August 31, 2006, the Santander Group held controlling interests, directly and indirectly, in four separate entities through which it conducted its banking operations in Brazil: Banco Santander Brasil S.A., Banco Santander Meridional S.A., Banco Santander S.A. and Banco do Estado de São Paulo S.A. — Banespa. On August 4, 2006, this group of banks was reorganized into a consolidated group under the Bank. The selected financial data included in this prospectus for the years ended December 31, 2006, 2005 and 2004 reflect the combined unaudited income statement data of the Bank, Banco Santander Brasil S.A., Banco Santander S.A. and Banco do Estado de São Paulo S.A. — Banespa for the years ended December 31, 2006, 2005 and 2004 and the combined unaudited balance sheet data of these banks at December 31, 2004 and 2005. Selected financial data at December 31, 2006 reflect consolidated audited financial data because these banks were reporting on a consolidated basis at that date.
 
IFRS differs in certain significant respects from U.S. GAAP. IFRS also differs in certain significant respects from Brazilian GAAP. Note 17 to our financial statements at June 30, 2009 and for the six months ended June 30, 2009 and note 45 to each of our 2008 financial statements and the financial statements of Banco Real, respectively, included herein, contain information relating to certain differences between IFRS and Brazilian GAAP. Unless otherwise indicated, all financial information of our company included in this prospectus is derived from our consolidated financial statements and Banco Real’s combined financial statements prepared in accordance with IFRS.
 
We prepare and will continue to prepare statutory financial statements in accordance with Brazilian GAAP.
 
See “Unaudited Pro Forma Consolidated Financial Information” for financial information reflecting our consolidated financial information, to give effect to our incorporation of Banco Real as if the acquisition of Banco Real by the Santander Group, its capital contribution of Banco Real to us and the share exchange transaction with minority shareholders (incorporação de ações) had occurred as of January 1, 2008.
 
Market Share and Other Information
 
We obtained the market and competitive position data, including market forecasts, used throughout this prospectus from internal surveys, market research, publicly available information and industry publications. We have made these statements on the basis of information from third-party sources that we believe are reliable, such as the Brazilian association of credit card companies (Associação Brasileira de Empresas de Cartões de Crédito e Serviços), or “ABECS”; the Brazilian association of leasing companies (Associação Brasileira de Empresas de Leasing), or “ABEL”; the Brazilian association of savings and mortgage financing entities (Associação Brasileira de Crédito Imobiliário e Poupança), or “ABECIP”; the Brazilian bank federation (FEBRABAN – Federação Brasileira de Bancos) or “FEBRABAN”; the Brazilian development bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES”; the Brazilian Institute of Geography and Statistics, or the “IBGE”; the Central Bank; the Central Bank system (Sistema do Banco Central), or “SISBACEN”, a Central Bank database; the Getulio Vargas Foundation (FGV – Fundação Getúlio Vargas), or “FGV”; the insurance sector regulator (Superintendência de
 
 
 
Seguros Privados), or “SUSEP”; the national association of investment banks (Associação Nacional dos Bancos de Investimento), or “ANBID”; and the national federation of private retirement and life insurance (Federação Nacional de Previdência Privada e Vida), or “FENAPREVI”, among others. Industry and government publications, including those referenced here, generally state that the information presented therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share, market size, market growth or other data provided by third parties or by industry or other publications. We and the international or Brazilian underwriters do not make any representation as to the accuracy of such information.
 
 
 
 
 
This summary highlights selected information about us and the units and ADSs that we are offering. It may not contain all of the information that may be important to you. Before investing in the units and ADSs, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our audited consolidated financial statements and the related notes, and the sections entitled “Risk Factors” and “Operating and Financial Review and Prospects” included elsewhere in this prospectus.
 
Overview
 
We are a leading full-service bank in Brazil, which we believe to be one of the most attractive markets in the world given its growth potential and low penetration rate of banking products and services. We are the third largest non government-owned bank, the largest bank controlled by a major global financial group and the fourth largest bank overall in Brazil with a 10.2% market share in terms of assets, at March 31, 2009. Our operations are located across the country and strategically concentrated in the South and Southeast, an area that accounted for approximately 75% of Brazil’s GDP in 2008, and where we have one of the largest branch networks of any Brazilian bank. For the six months ended June 30, 2009, we generated profit before taxes of R$3.8 billion, and at that date we had total assets of R$288.9 billion and shareholder’s equity of R$51.1 billion. Our Basel capital adequacy ratio (excluding goodwill) was 17.0%.
 
In August 2008, we acquired Banco Real which at the time was the fourth largest non government-owned Brazilian bank as measured by assets. At the time of the acquisition, we were the fifth largest non government-owned bank in Brazil as measured by assets. As a result of the acquisition of Banco Real and our organic growth, our net credit portfolio increased from R$44.6 billion at June 30, 2008 to R$132.3 billion at December 31, 2008, and our total deposits increased from R$46.9 billion at June 30, 2008 to R$124.0 billion at December 31, 2008, in each case as reported in our Brazilian GAAP financial statements. In the same period, our active current account holder base increased from 3.5 million to more than 8 million and our distribution network of branches and on-site service units increased from 1,546 to 3,603.
 
Banco Real’s operations are highly complementary to our pre-acquisition operations. We believe that the acquisition offers significant opportunities for the creation of operating, commercial and technological synergies by preserving the best practices of each bank. Banco Real’s strong presence in the states of Rio de Janeiro and Minas Gerais has further strengthened our position in the South and Southeast, complementing our strong footprint in the region, particularly in the state of São Paulo. The acquisition of Banco Real has further consolidated our position as a full-service bank with nationwide coverage and scale to compete effectively in our target markets.
 
Since the mid-1990s, Brazil has benefited from political, social and macroeconomic stability coupled with improvements in real income and a resulting high rate of upward social and economic mobility. During this period, the Brazilian financial services industry has experienced substantial growth, as economic stability, increased employment rates and rising purchasing power of the Brazilian population have been contributing to an increase in penetration of financial products and services. Nonetheless, the Brazilian financial market still presents a low credit penetration as compared to that of other developed and emerging markets, offering further growth opportunities. According to a World Bank 2009 Report, the ratio of total credit to GDP was approximately 50% in Brazil in 2007.  As of December 31, 2007, in the United States, the ratio of total credit to GDP was approximately 169% according to central bank statistics.  The Brazilian housing credit market is still incipient, with total mortgage loans accounting for approximately 2% of the GDP in 2007, according to the Central Bank, while, for example, in the United States the figure was approximately 68% in the same period according to the World Bank. We expect that credit penetration will continue to increase as a result of a relatively stable macroeconomic environment and customer-tailored new product offerings. In addition, we expect housing financing to grow given favorable trends, including a housing deficit, government’s focus on stimulating growth in the construction sector and legal reforms supporting the development of mortgage products. The Brazilian financial market is concentrated, with the four largest banks accounting for approximately 58% of total loans and 64% of savings deposits at March 31, 2009, according to the Central Bank.
 
 
 
 
 
 
 
 
We are a member of the Santander Group, one of the largest financial groups in the world as measured by market capitalization. At June 30, 2009, the Santander Group had stockholders’ equity of €66.8 billion and total assets of €1,148 billion and was present in more than 40 countries, serving over 90 million customers through more than 14,000 branches. In the six months ended June 30, 2009, our operations accounted for over 20% of Santander Group’s net income and 53% of its net income in Latin America.  At June 30, 2009, our business represented approximately 9% of the Santander Group’s assets and 51% of its assets in Latin America.
 
The following table shows certain financial and operational data for our operations.
 
   
At and for the six months ended June 30,
   
At and for the year ended
December 31,
 
   
2009
   
2008
   
2008
   
2007
 
Financial Data
   (in R$ million, except as otherwise indicated)  
Assets
    288,878       114,585       294,190       108,319  
Total loans and advances to customers, gross
    139,962       47,953       142,649       51,453  
Total deposits
    177,948       76,322       182,312       74,055  
Shareholders’ equity
    51,136       10,164       49,318       8,671  
Net interest income
    10,661       3,332       11,438       6,195  
Fee and commissions income
    3,463       1,881       4,809       3,364  
Total income
    15,483       5,573       15,971       11,367  
Profit for the period
    2,445       707       2,379       1,903  
Return on average shareholders’ equity(1)
    9.9 %     14.8 %     10.3 %     18.1 %
Efficiency ratio(2)
    34.7 %     40.8 %     45.0 %     39.2 %
Basel capital adequacy ratio (excluding goodwill)
    17.0 %     13.5 %     14.7 %     14.2 %
                                 
Operational Data
                               
Number of customers (in thousands)
 
21,639
   
20,143
      20,858       8,174  
Number of ATMs (in units)
    18,203       7,558       18,115       7,639  
Number of branches (in units)
    2,091       891       2,083       904  
Market share (based on assets)(3)
    10.2 %     4.4 %     10.5 %     4.5 %
Market share (based on deposits)(3)
    10.7 %     5.1 %     9.8 %     4.2 %
Market share (based on loan portfolio)(3)
    12.2 %     5.0 %     10.5 %     4.5 %
 

(1)  
Six month returns are presented on an annualized basis by doubling the earnings component. Annualized returns are not necessarily indicative of returns for the entire year, which may be materially different from the annualized returns.
(2)  
Efficiency ratio is defined as administrative expenses divided by total income. The ratio for the six months ended June 30, 2008 is presented on a pro forma basis. See “Unaudited Pro Forma Consolidated Financial Information” .
(3)  
Source: Central Bank.

Our Businesses
 
Our business consists of three operating segments: Commercial Banking, Global Wholesale Banking and Asset Management and Insurance. The following table shows selected financial data for our operating segments.

   
For the six months ended June 30, 2009
   
For the year ended December 31, 2008
 
   
Net interest income
   
% of total
   
Net interest income
   
% of total
 
   
(in millions of R$, except as otherwise indicated)
 
Commercial Banking
    9,750.8       91.5       10,191.7       89.1  
Global Wholesale Banking
    893.7       8.4       1,213.5       10.6  
Asset Management and Insurance(1)
    16.5       0.1       32.8       0.3  
Total
    10,661.0       100.0       11,438.0       100.0  

 
 
 
 
 
 
 
 
 
 

(1)
Does not include results of operations of the asset management and insurance companies acquired through a series of share exchange transactions (incorporações de ações) on August 14, 2009.  See “—Recent Events”.  Our asset management and insurance business represented 1.5% or R$227 million of our total income as of June 30, 2009.
 
Commercial Banking: We focus on customer relationships, extending credit, services and products to individuals and corporations (other than global corporate customers who are served by our Global Wholesale Banking segment) through personal loans (including home and automobile financing, unsecured consumer financing, checking account overdraft loans, credit cards and payroll loans), leasing, commercial loans, working capital lines and foreign trade financing. Our product offering extends to private retirement plans, insurance, bill collection and processing services. Our Commercial Banking operations also include private banking typically for individuals with investment assets of over R$1 million. Our business model is based on a tailored approach to each income class of our individual customers (high, mid and low income classes) in order to address their specific needs. We are particularly well positioned in the mid-income class (monthly income in excess of R$1,200 and below R$4,000) and the high income class (monthly income in excess of R$4,000). Our customers are serviced throughout Brazil primarily through our branch network, which, at June 30, 2009, consisted of 2,091 branches, 1,521 on-site service units located at our corporate customers’ premises, and 18,203 ATMs, as well as our Internet banking platform and our call center operations. We believe our retail operations have benefited significantly from the acquisition of Banco Real, by improving our geographic coverage of Brazil and complementing our client portfolios. For example, Banco Real has historically had strong presence in the high-income class and small and medium-sized businesses, or SMEs, and in products such as automobile financing, while our strengths have been historically in the mid-income class and civil servant sectors, and in insurance products.
 
Global Wholesale Banking: We are a leading wholesale bank in Brazil and offer financial services and sophisticated and structured solutions to our customers, in parallel with our proprietary trading activities. Our wholesale banking business focuses on servicing approximately 700 large local and multinational conglomerates, which we refer to as Global Banking & Markets, or “GB&M”, customers. In the six months ended June 30, 2009, Brazilian operations represented approximately 30% of the Santander Group’s wholesale banking business measured by profit before tax. Our wholesale business provides our customers with a wide range of domestic and international services that are specifically tailored to the needs of each client. We offer products and services in the following key areas: global transaction banking, credit markets, corporate finance, equities, rates, market making and proprietary trading. Our customers benefit from the global services provided by the Santander Group’s integrated wholesale banking network and local market expertise. Our proprietary trading desk is under strict risk control oversight and has consistently shown positive results, even under volatile scenarios.
 
Asset Management and Insurance: We are the fourth largest asset manager in Brazil by assets under management, with 437,258 customers, according to data published by ANBID in June 2009. At June 30, 2009, we had R$99.8 billion in assets under management. Our product offering includes fixed income, money market, equity and multi-market funds. As part of our insurance business, we offer primarily bancassurance products related to our core banking business, such as home, credit life insurance and capitalization and pension products, to our retail and SME customers. We recently acquired 50% of Real Seguros Vida e Previdência S.A. (formerly Real Tokio Marine Vida e Previdência S.A.). Following the acquisition, Santander Brasil became one of the largest insurance companies in terms of issued premiums as of June 30, 2009, ranking eleventh in premiums, fourth in personal accident insurance, sixth in life insurance and fourth in residential insurance in Brazil (when combining our historic business with the business of Real Seguros Vida e Previdência). We believe that our strong branch network and client base will allow us to further expand the bancassurance business in a coordinated manner to individuals and SMEs as well as large corporations. We focus on the sale of products issued by the Santander Brasil Group, which represented almost 80% of our insurance premiums in the six months ended June 30, 2009. On August 14, 2009, our shareholders elected to transfer certain Brazilian asset management and insurance companies that were previously owned by Santander Spain to Santander Brasil, through a series of share exchange transactions (incorporações de ações) in order to consolidate all of the Santander Group’s Brazilian insurance and asset management operations
 
 
 
 
 
 
 
into Santander Brasil.  These transactions are pending approval by the Central Bank and SUSEP (with respect to the insurance operations).  See “—Recent Events”.
 
Our Competitive Strengths
 
We believe that our profitability and competitive advantages are the result of Santander Brasil’s five pillars: nationwide presence with leading position within the high income regions of the country; wide range of products tailored to meet client needs; conservative risk profile; scalable state-of-the-art technology platform; and focus on sustainable growth, both organically and through selective acquisitions.
 
Relationship with the Santander Group
 
We believe that being part of the Santander Group offers us a significant competitive advantage over the other banks in our peer group, none of which is part of a similar global banking group. This relationship allows us to:
 
·  
leverage the Santander Group’s global information systems platform, reducing our technology development costs, providing operational synergies with the Santander Group and enhancing our ability to provide international products and services to our customers;
 
·  
access the Santander Group’s multinational client base;
 
·  
take advantage of the Santander Group’s global presence, in particular in other countries in Latin America, to offer international solutions for our Brazilian corporate customers’ financial needs as they expand their operations globally;
 
·  
selectively replicate or adapt the Santander Group’s successful product offerings from other countries in Brazil;
 
·  
benefit from the Santander Group’s operational expertise in areas such as internal controls and risk management, which practices have been developed in response to a wide range of market conditions across the world and which we believe will enhance our ability to grow our business within desired risk limits;
 
·  
leverage the Santander Group’s experience with integrations to maximize and accelerate the generation of synergies from the Banco Real acquisition and any future acquisitions; and
 
·  
benefit from the Santander Group’s management training and development which is composed of a combination of in-house training and development with access to managerial expertise in other Santander Group units outside Brazil.
 
Strong presence in attractive demographic and geographic areas
 
We are focused on the growing mid- and high-income classes in Brazil, which we define as individuals with monthly income in excess of R$1,200 and R$4,000, respectively. We are well positioned to benefit from the growth in our target customer base and the relatively low penetration of financial products and services in Brazil, through sales of key products such as credit cards and insurance. Mid- and high-income customers provide access to a stable and low cost funding base through customer time and demand deposits. Furthermore, we believe that our focus in these income classes has increased our profitability, as they have traditionally produced higher volumes and margins.
 
We believe that there is further potential through the use of our existing, scalable and newly redesigned IT platform for increasing the penetration of financial products and services with our current client base of approximately 99.1 million current account holders according to the Central Bank. For example, at June 30, 2009,
 
 
 
 
 
only 20% of our current account holders had personal loans and only 60% had a credit card. In addition, the acquisition of Banco Real strengthened our competitive position in the South and Southeast regions of Brazil, an area that accounted for approximately 73.1% of Brazil’s GDP in 2008, and where we now have one of the largest branch networks among Brazilian banks. Our presence on these attractive geographic areas, combined with our focus on mid- and high-income customers allow us to effectively cover a significant portion of Brazil’s economic base.
 
Track record of successful integrations
 
The Santander Group has expanded its footprint worldwide through the successful integration of numerous acquired businesses. For example, Abbey National Bank in the United Kingdom improved its efficiency ratio (cost to income) from 70.0% in 2004, when it was acquired by the Santander Group, to 46.7% in 2008. In addition, since 1997, the Santander Group has acquired six banks in Brazil, demonstrating its ability to execute complex acquisitions in this market, integrate the acquired companies into its existing business and improve the acquired companies’ operating performance. Our first significant acquisition was of Banespa in November 2000. In our acquisitions, but particularly in the case of Banco Real, we join the best of both banks into a single institution, benchmarking business strategies, key personnel, technology and processes of both banks to ensure the optimal combination for a sustainable competitive position. That is the case with our integration of Banco Real, from which we are seeking to achieve cumulative cost synergies of approximately R$2.4 billion (calculated based on the costs of Santander Brasil and Banco Real for 2008 adjusted for inflation and estimated salary increases) and cumulative revenue synergies of approximately R$300 million by 2010.
 
We started the process of the operational, commercial and technological integration of Banco Real immediately following the share exchange (incorporação de ações) in August 2008. We developed a three-year integration plan, which we are carefully executing in an effort to achieve synergies and ensure that best practices will be identified and implemented. Our wholesale banking operations have been fully integrated since the end of 2008. In March 2009, we began the integration of the branch networks and electronic distribution channels of the two institutions to enable customers to perform not only cash withdrawals but a full range of transactions at branches or ATMs of either bank. We expect to have fully integrated ATM and branch networks in 2010. We believe that we have thus far achieved our key integration goals, including maintaining and improving customer service; identifying operational strengths of each bank and maintaining and leveraging these strengths; establishing a new business culture among our employees focused on our strengths; retaining and developing trained and talented employees; and achieving our operating targets.
 
Leading market position
 
We rank third among non government-owned banks in Brazil in terms of assets with a market share of 10.2% at March 31, 2009. Among these banks, we believe we hold a top three market position in most of our key product lines as evidenced by our market share in the following selected products and regions.
 
   
At March 31, 2009
 
   
Market share (%)
 
Overdraft
    19.1    
Payroll/individual loans
    13.1    
Auto leasing/CDC
    15.3    
Credit cards
    9.7    
Branches
    12.2    
Southeast
    15.9    
South
    8.7    


Source: Central Bank.
 
 
 
 
 
 
 
The acquisition of Banco Real has further enhanced our critical mass in the Brazilian market. We believe that our scale and market leadership provide us with exceptional competitive opportunities including the ability to gather market intelligence to support decision-making in determining business opportunities and in meeting our customers’ needs operating as a full service bank. Since the acquisition of Banco Real, we have organically increased our market share in key business lines such as payroll/individual loans, overdraft on current accounts and credit cards. In addition, we are a leading wholesale bank in Brazil. Through our unique access to the Santander Group’s global network, we are able to support our large Brazilian corporate customers in the internationalization of their businesses, for example, through trade and acquisition financing, which brings together a loan syndicate that could use several take-out strategies in different markets. As one of the top tier banks in the country, and in light of the opportunities for leveraging our operating segments, our broad product offering and geographic presence, we are well positioned to gain market share.
 
State-of-the-art integrated technology platform
 
We operate the latest generation customer-centered technology platform that incorporates the standards and processes, as well as the proven innovations, of both the Santander Group worldwide and Banco Real. The incorporation of a customer relationship management system enables us to deliver products and services targeted to the needs of our customers. Because our IT platform is integrated with the platform of the Santander Group, we are able to support our customer’s global businesses and benefit from a flexible and scalable platform that will support our growth in the country. This platform has been enriched with a set of customer-focused features inherited from Banco Real, which we believe provides us with a significant competitive advantage.
 
Our Strategy
 
Our goal is to be the leading full-service bank in Brazil in terms of revenues, profitability and brand recognition, as well as client and work force satisfaction. We strive to be a relationship bank and the primary bank of our retail and wholesale customers based on sustainable practices, serving them with our full range of products. We believe we can achieve these goals through the following strategies:
 
Improve operating efficiency by benefiting from integration synergies and implementing best practices
 
We will continue seeking ways to further improve our operating efficiency and margins. We intend to maintain investment discipline and direct resources to areas that generate improvements in our client management and increase our revenues. We expect to be able to generate additional synergies from the combination of best practices of Santander Brasil and Banco Real, both in terms of revenues as we further leverage on relationship and cross selling opportunities across a wider client base, as well as in terms of costs as we realize the potential gains driven by scale, raising our efficiency levels. We believe that synergies creation will be supported by the complementary geographic distribution and customer base of the combined branch networks and the banks’ relatively low product overlap. Our integration has already shown a significant expense reduction, with our cost to income ratio declining from 45.0% in 2008 to 34.7% in the first half of 2009, and we believe that there are opportunities for further reductions in operating expenses.
 
Expand product offering and distribution channels in Commercial Banking
 
We intend to further increase our business and operations throughout Brazil, expanding our Commercial Banking services to existing and prospective retail customers. We plan to offer new products and services to existing customers based on each customer’s profile through our numerous distribution channels by leveraging our customer relationship management data base and IT platform. Our efforts related to the offer of new products and expansion of our reach to other markets will continue to be focused on the correct risk measurement of those opportunities. We also will seek to increase our market share through the offering of innovative banking products and intend to focus on product areas where we believe there is opportunity to increase our presence in the Brazilian market, for example in credit cards and insurance products. Furthermore, we plan to attract current account holders by capturing users of our products, such as automobile financing, insurance or credit cards. We will continue to focus our marketing
 
 
 
 

 
 
efforts to enlarge our customer base and increase the number of products used by each client, as well as to increase our share in those products for which clients generally operate with more than one bank. We intend to improve our competitiveness by further strengthening our brand awareness, particularly through marketing.
 
We intend to improve and expand the distribution channels for our products through our traditional branch network and alternative marketing and direct sales distribution channels such as telemarketing, Internet banking and correspondent banks. We plan to open 600 new branches by 2013 in our stronghold area of South and Southeastern Brazil and other regions where we have critical mass. We will continue to maximize the synergies and leverage the opportunities between our corporate and retail businesses. For instance, when rendering payroll services to our corporate customers, we can place an on-site service unit at our corporate client’s premises and thereby access its employees as a potential new customer base and achieve the critical mass necessary to open a new branch in that area. We intend to grow our mortgage business as a consequence of the housing deficit in Brazil and the legal reforms supporting mortgage financing.
 
Capitalize on our strong market position in the wholesale business
 
We provide multinational corporations present in Brazil and local companies, including those with operations abroad, with a wide variety of financial products, utilizing our worldwide network to serve our customers’ needs with customized solutions. We intend to further focus on our strong worldwide position as a client relationship wholesale bank, in line with the Santander Group’s worldwide strategy for the Global Wholesale Banking segment. We expect to benefit from the Santander Group’s strengthened market position as a key player in the global banking industry and thereby strengthen our existing relationships and build new lasting relationships with new customers, exploring the widest possible range of our product portfolio, particularly higher margin products. In addition, as a leading local player with the support of a major international financial institution, we intend to be a strong supporter of Brazilian corporations as they continue to expand their businesses worldwide. Moreover, we believe that we can use our relationship with large corporate customers to access their suppliers as potential new customers. In addition, we intend to distribute treasury products to smaller companies or individuals through the Santander Global Connect (SGC) platform.
 
Further develop a transparent and sustainable business platform
 
We will maintain a commitment to economic, social and environmental sustainability in our procedures, products, policies and relationships. We will continue building durable and transparent relationships with our customers through understanding their needs and designing our products and services to meet those needs. We believe that our commitment to transparency and sustainability will help us create a business platform to maintain growth in our operations over the long term and that is instrumental to forge business relationships, improve brand recognition and attract talented professionals. We will continue to sponsor educational opportunities through Santander Universidades and the Universia portal to foster future potential customer relationships.
 
Continue growing our insurance business
 
We intend to continue growing our insurance business, particularly bancassurance. Our commitment to grow in this segment was recently demonstrated by our acquisition of the remaining 50% of Real Seguros Vida e Previdência S.A. (formerly Real Tokio Marine Vida e Previdência S.A.). We expect to increase our presence within the insurance segment by leveraging on our strong branch network and client base, particularly in the South and Southeast, to cross sell insurance products with the goal of maximizing the income generated by each customer, as well as using our strong relationships with SMEs and large corporations within the country. We intend to sell our products by means of our traditional distribution channels, such as branches, and also through ATMs, call center and Internet banking.
 
 
 
 
 
 
 
 
Recent Events
 
On August 14, 2009, as a result of a capital contribution by our parent company and a series of share exchange transactions (incorporações de ações), 100% of the share capital of certain Brazilian asset management, insurance and banking companies, all of which were previously owned by Santander Spain and minority shareholders, were transferred to us.  These transactions are pending approval by the Central Bank and SUSEP (with respect to the insurance operations).  The purpose of these transactions was to consolidate Santander Spain’s investments in Brazil, to simplify the current Santander Group corporate structure and to consolidate Santander Spain’s and the minority shareholders’ interests in such entities in Santander Brasil.  As a result of these transactions, our capital stock was increased by approximately R$2.5 billion through the issuance of 14,410,886,181 shares, comprised of 7,710,342,899 common shares and 6,700,543,282 preferred shares. Under IFRS, we accounted for the share exchange transactions as from the date such transactions were completed based on the historical carrying amounts of assets and liabilities of the companies transferred.
 
The following table sets forth the name of each transferred company, its principal business activities, net income for the year ended December 31, 2008 and shareholders’ equity as of December 31, 2008, each in accordance with Brazilian GAAP.
 
     
At and for the year ended December 31, 2008
 
 
 
Principal business activity
 
Net income
   
Shareholders’ equity
 
     
(in millions of R$)
 
Santander Seguros S.A.
Commercialization of life insurance policies and pension funds
    131       392  
Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A.
Asset management
    41       80  
Banco Comercial e de Investimento Sudameris S.A.
Multiple service banking
    186       2,011  

Risks Related to Our Business
 
Prospective investors should carefully consider the risks and other matters described under “Risk Factors”, including the following:
 
·  
we are vulnerable to the current disruptions and volatility in the global financial markets as well as to government action intended to alleviate the effects of the recent financial crisis;
 
·  
changes in regulation may negatively affect us;
 
·  
developments and the perception of risk in other countries, especially in the United States and in emerging market countries, may adversely affect our access to financing and the market price of our securities;
 
·  
our securities and derivative financial instruments are subject to market price and liquidity variations due to changes in economic conditions and may produce material losses;
 
 
 
 
 
 
 
·  
changes in base interest rates by the Central Bank could adversely affect our results of operations and profitability;
 
·  
the increasingly competitive environment and recent consolidations in the Brazilian financial services market may adversely affect our business prospects;
 
·  
we may experience increases in our level of past due loans as our loan portfolio matures;
 
·  
our market, credit and operational risk management policies, procedures and methods may not be fully effective in mitigating our exposure to unidentified or unanticipated risks;
 
·  
if our reserves for future insurance policyholder benefits and claims are inadequate, we may be required to increase our reserves, which would adversely affect our results of operations and financial condition;
 
·  
we may fail to recognize the contemplated benefits of the acquisition of Banco Real;
 
·  
the profitability of our insurance operations may decline if mortality rates, morbidity rates or persistency rates differ significantly from our pricing expectations; and
 
·  
our controlling shareholder has a great deal of influence over our business.
 
One or more of these matters could negatively impact our business or financial performance and our ability to implement our business strategy successfully.
 


Our principal executive offices are located at Rua Amador Bueno, 474, São Paulo, SP 04752-005, Brazil, and our general telephone number is (55 11) 3174-8589. Our website is www.santander.com.br. Information contained on, or accessible through, our website is not incorporated by reference in, and shall not be considered part of, this prospectus.
 
 
 
 
 
 
 
THE OFFERING
 
Issuer
 
Banco Santander (Brasil) S.A.
     
Global offering
 
The global offering consists of the international offering and the concurrent Brazilian offering.
     
International offering
 
We are offering            units, including units in the form of ADSs, through the international underwriters (which, in the case of the units, will act as placement agents on behalf of the Brazilian underwriters) in the United States and other countries outside Brazil. The units purchased by any investor outside Brazil will be settled in Brazil and paid for in reais. Any investor outside Brazil purchasing units must comply with the requirements established by the National Monetary Council (Conselho Monetário Nacional), or “CMN” and the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM.”
 
Brazilian offering
 
Concurrently with the international offering, we are offering        units through the Brazilian underwriters in Brazil to investors in Brazil.
     
Employee, director, officer and customer offering
 
We will reserve up to 20% of the units in the retail portion of the Brazilian offering for our employees, directors and officers and customers in Brazil at the public offering price for the Brazilian offering. See “Underwriting”.
 
 
 
 
 
 
 
Units
 
Except as described under “Subscription Receipts” below, each unit represents 55 common shares and 50 preferred shares. A holder of units will be entitled to the same dividend and voting rights as a holder of the underlying shares. For a description of the material terms of the units and of a unit holder’s material rights, see “Description of Capital Stock—Description of the Units.”
     
Assembling Units
 
After the ratification of our capital increase by the Central Bank and completion of this offering, we intend to create a structure to allow non-controlling shareholders that hold common or preferred shares but not amounts sufficient to allow them to assemble units (that is, lots of 55 common shares and 50 preferred shares in exchange for each unit), to acquire common and preferred shares at market price in order to complete units.  This structure may be subject to regulatory approval and its terms and conditions would then be communicated to the non-controlling shareholders.  We cannot be sure that we will be able to implement such a structure or that it will be approved by the CVM and BM&FBOVESPA. Our shareholder Santander Seguros, a member of the Santander Group, has indicated its intention to sell its own shares issued by us to our other non-controlling shareholders that intend to purchase common or preferred shares exclusively for purposes of acquiring the correct amount of shares to allow them to assemble units.
     
ADSs
 
Each ADS represents one unit. ADSs will be evidenced by American depositary receipts, or “ADRs”. The ADSs will be issued under a deposit agreement among us,                          as depositary, and the registered holders and beneficial owners from time to time of ADSs issued thereunder.
 
 
 
 
 
 
 
Subscription receipts
 
In order to comply with Central Bank regulations and certain fungibility requirements of the BM&FBOVESPA, each unit will, until the approval of our capital increase by the Central Bank, represent fractional shares of our common shares and preferred shares and subscription receipts representing the right to receive additional common shares and preferred shares such that each unit will initially represent 47.83 subscription receipts of common shares, 7.17 common shares, 43.48 subscription receipts of preferred shares and 6.52 preferred shares.  Upon approval by the Central Bank of our capital increase, which is expected to occur promptly after the closing of this offering, the subscription rights will be converted into common and preferred shares and each unit will represent 55 common shares and 50 preferred shares.  If the Central Bank does not ratify our capital increase within six months from the closing date of this offering, Santander Insurance Holding, S.L., one of our shareholders, has agreed to deliver to each record holder of units as of the date of delivery, free of charge, a fraction of a preferred share and a fraction of a common share such that the aggregate numbers of common and preferred shares represented by all units held of record by that holder plus such fractions of shares make up whole numbers of preferred and common shares.  For example, a record holder of two units (representing receipts plus 14.34 common shares and 13.04 preferred shares) would receive 0.66 common shares and 0.96 preferred shares.  In addition, the capital increase corresponding to the subscription receipts would be cancelled and amounts in respect of such subscription receipts equal to the amounts paid for such receipts in this offering would be distributed to the then-current investors.  See “Risk Factors—Risks Relating to Our Units and ADSs—Until the Central Bank ratifies our capital increase in connection with this offering, the units will represent subscription receipts, common and preferred shares and not only our common and preferred shares. We cannot provide assurance as to when or if the Central Bank will ratify our capital increase.” and “Description of Capital Stock—Description of the Subscription Receipts”.
     
Offering price
 
The public offering price for the international offering for the units and ADSs is set forth on the cover page of this prospectus.
     
Over-allotment options
 
We have granted the international underwriters the right to purchase up to an additional                      ADSs within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the international offering. We have also granted the Brazilian underwriters the right to purchase up to an additional        units within 30 days from the date of commencement of trading of the units on the BM&FBOVESPA, to cover over-allotments, if any, in connection with the Brazilian offering.
 
 
 
 
 
 
 
 
     
Use of proceeds
 
We estimate that the net proceeds to us from the global offering (before deducting underwriting fees and transaction expenses) will be approximately U.S.$          . We intend to use the net proceeds from the global offering to expand our business in Brazil by growing our physical presence and increasing our capital base.  We also intend to improve our funding structure and, along with our traditional funding sources, increase our current credit transactions. See “Use of Proceeds”.
     
Share capital before and after global offering
 
As of the date of this prospectus, our share capital consisted of 158,154,602,751 preferred shares and 181,989,171,114 common shares. We did not have any shares in treasury.
 
Immediately after the global offering, we will have        common shares and        preferred shares outstanding, assuming no exercise of the underwriters’ over-allotment options.
 
Following the offering, Santander Spain, our controlling shareholder, will continue to own, indirectly, approximately    % of our common shares,     % of our preferred shares and     % of our total capital, assuming no exercise of the underwriters’ over-allotment options.
     
Voting rights
 
A holder of units will be entitled to the same voting rights as a holder of the underlying common and preferred shares. No voting rights attach to subscription receipts or to fractions of shares.
 
Holders of our common shares are entitled to vote in our shareholders’ meetings.  Holders of our preferred shares are not entitled to vote in our shareholders’ meetings, with limited exceptions. See “Description of Capital Stock—Rights of Common Shares and Preferred Shares”.
 
Holders of ADSs are entitled to instruct the depositary how to vote underlying common shares, subject to the terms of the applicable deposit agreement. See “Description of American Depositary Shares—Voting of the Underlying Deposited Securities”.
     
Dividends
 
We intend to declare and pay dividends and/or interest attributed to shareholders equity, as required by the Brazilian corporate law and our by-laws. The amount of any distributions will
 
 
 
 
 
 
 
 
   
depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders.
 
Holders of the ADSs will be entitled to receive dividends to the same extent as the owners of our common and preferred shares, subject to the deduction of the fees of the depositary and the costs of foreign exchange conversion. See “Dividends and Dividend Policy” and “Description of Capital Stock”.
     
Listing
 
We expect to list the ADSs on the New York Stock Exchange, or NYSE, under the symbol “      ”.  We expect to list the units on the BM&FBOVESPA under the symbol “SANB11”.
     
Lock-up agreements
 
We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Our parent company, members of our board of directors and our executive officers have agreed to substantially similar lock-up provisions, subject to certain exceptions.
ADR Depositary
   
Risk factors
 
See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in the units or ADSs.
Expected timetable for the global offering (subject to change):
 
Commencement of marketing of the global offering
, 2009
Pricing
, 2009
Commencement of trading of ADSs on NYSE
, 2009
Settlement and delivery of units and ADSs
, 2009

Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted to         , to be exercised with the consent of         , to purchase up to         additional units in the form of ADSs to cover over-allotments of ADSs, if any, in connection with the international offering and the Brazilian underwriters’ option to purchase up to         units to cover over-allotments, if any in connection with the Brazilian offering.
 
 
 
 
 
 
 
 
SUMMARY FINANCIAL AND OPERATING DATA
 
Santander Brasil financial data at and for the years ended December 31, 2008 and 2007 have been derived from the audited consolidated financial statements prepared in accordance with IFRS included in this prospectus. Banco Real has been consolidated with our financial statements since August 30, 2008. The Banco Real financial data at and for the year ended December 31, 2007 and for the period from January 1 to August 29, 2008 have been derived from the audited combined financial statements prepared in accordance with IFRS for Banco Real included in this prospectus. Our results of operations for the year ended December 31, 2008 are not comparable to our results of operations for the year ended December 31, 2007 because of the consolidation of Banco Real in our financial statements as from August 30, 2008. See “Operating and Financial Review and Prospects—Acquisition of Banco Real”.
 
The summary consolidated financial data at June 30, 2009 and for the six months ended June 30, 2009 and 2008 for Santander Brasil have been derived from the unaudited consolidated interim financial information included elsewhere in this prospectus, which in the opinion of our management, includes all adjustments necessary to present fairly our results of operations and financial condition at the dates and for the periods presented.  The results for the six months ended June 30, 2009 are not necessarily indicative of the results of operations that you should expect for the entire year ended December 31, 2009 or any other period.
 
The summary combined financial data for the period from January 1 to August 29, 2007 for Banco Real have been derived from the unaudited combined interim financial information included elsewhere in this prospectus, which in the opinion of our management, includes all adjustments necessary to present fairly our results of operations and financial condition at the dates and for the periods presented.
 
The pro forma summary financial data for Santander Brasil for the year ended December 31, 2008 and six months ended June 30, 2008 have been derived from the unaudited pro forma consolidated financial information included elsewhere in this prospectus, which gives effect to our incorporation of Banco Real as if the acquisition of Banco Real by the Santander Group, its capital contribution of Banco Real to us and the share exchange transaction with minority shareholders (incorporação de ações) had occurred as of January 1, 2008. See “Unaudited Pro Forma Consolidated Financial Information.”
 
This financial information should be read in conjunction with our audited and unaudited financial statements and the related notes and the sections entitled “Selected Financial and Operating Data” and “Operating and Financial Review and Prospects” included elsewhere in this prospectus.
 
Santander Brasil Income Statement Data
 
     
Santander Brasil
 
     
For the six months ended June 30,
 
     
2009
     
2009
     
2008
(pro forma)(1)
     
2008
 
     
(in millions of U.S.$, except as otherwise indicated)(2)
     
(in millions of R$, except as otherwise indicated)
 
Interest and similar income
    10,131       19,771       17,405       6,715  
Interest expense and similar charges
    (4,668 )     (9,110 )     (7,978 )     (3,383 )
Net interest income
    5,463       10,661       9,427       3,332  
Income from equity instruments
    8       15       18       16  
Share of results of entities accounted for using the equity method
    132       257       161       2  
Fee and commission income
    1,774       3,463       3,440       1,881  
Fee and commission expense
    (229 )     (447 )     (500 )     (164 )
Gains/losses on financial assets and liabilities (net)
    1,401       2,734       1,459       686  
 
 
 
 
 
 
 
 
     
Santander Brasil
 
     
For the six months ended June 30,
 
     
2009
     
2009
     
2008
(pro forma)(1)
     
2008
 
     
(in millions of U.S.$, except as otherwise indicated)(2)
     
(in millions of R$, except as otherwise indicated)
 
Exchange differences (net)
    (531 )     (1,037 )     (470 )     (145 )
Other operating income (expenses)
    (84 )     (163 )     26       (35 )
Total income
    7,934       15,483       13,561       5,573  
Administrative expenses
    (2,756 )     (5,380 )     (5,535 )     (2,234 )
Depreciation and amortization
    (254 )     (495 )     (546 )     (310 )
Provisions (net)(3)
    (1,004 )     (1,958 )     (934 )     (522 )
Impairment losses on financial assets (net) (4)
    (2,475 )     (4,831 )     (3,194 )     (1,496 )
Impairment losses on other assets (net)
    (35 )     (68 )     (15 )     (9 )
Gains/losses on disposal of assets not classified as non-current assets held for sale
    586       1,145       38       32  
Gains/losses on disposal of non-current assets held for sale
    (29 )     (56 )     (14 )     (24 )
Profit before tax
    1,967       3,840       3,361       1,010  
Income tax
    (714 )     (1,395 )     (1,191 )     (303 )
Consolidated profit for the period
    1,253       2,445       2,170       707  
                                 
Earnings per share
                               
Basic and diluted earnings per 1,000 shares
                               
Common shares (reais)
            7.17       6.45       5.07  
Preferred shares (reais)
            7.89       7.09       5.58  
Common shares (U.S. dollars)(2)
            3.67       4.05       3.18  
Preferred shares (U.S. dollars)(2)
            4.04       4.45       3.51  
Weighted average shares outstanding (in thousands) – basic and diluted
                               
Common shares
            174,292,416       172,041,961       71,315,968  
Preferred shares
            151,465,867       149,503,808       61,969,586  

(1)
See “Unaudited Pro Forma Consolidated Financial Information” for more information.
 
(2)
Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(3)
Principally provisions for legal and tax contingencies.
 
(4)
Net provisions to the credit loss allowance less recoveries of loans previously written off.
 
(5)
Includes dividends based on net income and dividends based on reserves.
 
 
 
 
 
 

 
 
   
Santander Brasil
 
   
For the year ended December 31,
 
   
2008
(pro forma)(1)
   
2008
   
2007
 
   
(in millions of R$, except as otherwise indicated)
 
Interest and similar income
    38,102       23,768       13,197  
Interest expense and similar charges
    (18,872 )     (12,330 )     (7,002 )
Net interest income
    19,230       11,438       6,195  
Income from equity instruments
    39       37       36  
Share of results of entities accounted for using the equity method
    305       112       6  
Fee and commission income
    6,849       4,809       3,364  
Fee and commission expense
    (983 )     (555 )     (266 )
Gains/losses on financial assets and liabilities (net)
    (485 )     (1,286 )     1,517  
Exchange differences (net)
    1,261       1,476       382  
Other operating income (expenses)
    (74 )     (60 )     133  
Total income
    26,143       15,971       11,367  
Administrative expenses
    (11,532 )     (7,185 )     (4,460 )
Depreciation and amortization
    (1,236 )     (846 )     (580 )
Provisions (net)(2)
    (1,702 )     (1,230 )     (1,196 )
Impairment losses on financial assets (net) (3)
    (6,570 )     (4,100 )     (2,160 )
Impairment losses on other assets (net)
    (85 )     (77 )     (298 )
Gains/losses on disposal of assets not classified as non-current assets held for sale
    33       7       1  
Gains/losses on disposal of non-current assets held for sale
    22       9       13  
Profit before tax
    5,072       2,549       2,687  
Income tax
    (1,159 )     (170 )     (784 )
Consolidated profit for the year
    3,913       2,379       1,903  
                         
Earnings per share
                       
Basic and diluted earnings per 1,000 share
                       
Common shares (reais)
    11.65       11.59       14.02  
Preferred shares (reais)
    12.81       12.75       15.43  
Common shares (U.S. dollars)(4)
    6.01       5.94       7.18  
Preferred shares (U.S. dollars)(4)
    6.60       6.53       7.91  
Dividends and interest on capital per 1,000 shares(5)
                       
Common shares (reais)
            4.26       16.30  
Preferred shares (reais)
            4.69       17.93  
Common shares (U.S. dollars)(4)
            2.18       8.35  
Preferred shares (U.S. dollars)(4)
            2.40       9.19  
Weighted average shares outstanding (in thousands) – basic and diluted
                       
Common shares
    171,800,386       104,926,194       69,383,705  
Preferred shares
    149,283,961       91,168,064       60,285,449  

(1)
See “Unaudited Pro Forma Consolidated Financial Information” for more information.
 
(2)
Principally provisions for legal and tax contingencies.
 
(3)
Net provisions to the credit loss allowance less recoveries of loans previously written off.
 
(4)
Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(5)
Includes dividends based on net income and dividends based on reserves.
 
 
 
 
 
 
Santander Brasil Balance Sheet Data
 
   
Santander Brasil
 
   
At June 30,
   
At June 30,
   
At December 31,
 
   
2009
   
2009
   
2008
   
2007
 
   
(in millions of U.S.$)(1)
   
(in millions of R$)
 
Assets
                       
Cash and balances with the Brazilian Central Bank
    12,714       24,813       23,700       22,277  
Financial assets held for trading
    8,101       15,809       19,986       12,293  
Other financial assets at fair value through profit or loss
    3,109       6,068       5,575       1,648  
Available-for-sale financial assets
    15,676       30,593       30,736       9,303  
Loans and receivables
    82,826       161,644       162,725       55,034  
Hedging derivatives
    91       178       106        
Non-current assets held for sale
    30       58       113       32  
Investments
    257       502       634       55  
Tangible assets
    1,845       3,600       3,829       1,111  
Intangible assets
    15,674       30,589       30,995       1,799  
Tax assets
    6,860       13,388       12,920       4,223  
Other assets
    838       1,636       2,871       544  
Total assets
    148,021       288,878       294,190       108,319  
                                 
Liabilities
                               
Financial liabilities held for trading
    2,504       4,887       11,210       4,650  
Other financial liabilities at fair value through profit or loss
    186       363       307       690  
Financial liabilities at amortized cost
    106,397       207,644       213,973       84,781  
Deposits from the Brazilian Central Bank
    446       870       185        
Deposits from credit institutions
    11,167       21,793       26,325       18,217  
Customer deposits
    79,382       154,922       155,495       55,147  
Marketable debt securities
    5,790       11,299       12,086       2,806  
Subordinated liabilities
    5,634       10,996       9,197       4,210  
Other financial liabilities
    3,978       7,764       10,685       4,401  
Hedging derivatives
    32       63       265        
Provisions(2)
    5,228       10,203       8,915       4,816  
Tax liabilities
    3,767       7,352       6,156       1,719  
Other liabilities
    3,361       6,560       3,527       1,454  
Total liabilities
    121,476       237,072       244,353       98,111  
Shareholders’ equity
    26,202       51,136       49,318       8,671  
Minority interests
    3       5       5        
Valuation adjustments
    341       665       514       1,537  
Total equity
    26,545       51,806       49,837       10,208  
Total liabilities and equity
    148,021       288,878       294,190       108,319  
                                 
Average assets
    147,558       287,974       163,621       100,243  
Average interest-bearing liabilities
    95,598       186,569       109,455       69,204  
Average shareholders’ equity
    26,000       50,742       23,110       10,521  

(1)
Translated for convenience only using the selling rate as reported by the Central Bank at June 30, 2009 for reais into U.S. dollars of R$1.9516 to U.S.$1.00.
 
(2)
Provisions for pensions and contingent liabilities.
 
 
 
 
 
 
 
Santander Brasil Ratios
 
   
At and for the six months ended June 30,
   
At and for the year ended December 31,
 
   
2009
   
2008
   
2008
   
2007
 
Profitability and performance
                       
Net yield(1)(2)
    9.9 %     7.6 %     8.6 %     7.2 %
Return on average total assets(1)
    1.7 %     1.3 %     1.5 %     1.9 %
Return on average shareholders’ equity(1)
    9.9 %     14.8 %     10.3 %     18.1 %
Adjusted return on average shareholders’ equity(1)(3)
    21.9 %     14.8 %     16.8 %     18.1 %
Capital adequacy
                               
Average shareholders’ equity as a percentage of average total assets
    17.6 %     9.4 %     14.1 %     10.5 %
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill(3)
    9.0 %     9.4 %     9.2 %     10.5 %
Basel capital adequacy ratio(4)
    17.0 %     13.6 %     14.7 %     14.2 %
Asset quality
                               
Non-performing assets as a percentage of total loans(5)
    6.7 %     4.6 %     5.4 %     4.1 %
Non-performing assets as a percentage of total assets(5)
    3.3 %     1.9 %     2.6 %     2.2 %
Non-performing assets as a percentage of computable credit risk(5)(6)
    5.8 %     3.3 %     4.7 %     3.2 %
                                 
Allowance for credit losses as a percentage of non-performing assets(5)
    97.1 %     112.2 %     105.8 %     107.5 %
Allowance for credit losses as a percentage of total loans
    6.5 %     5.1 %     5.7 %     4.4 %
Net loan charge-offs as a percentage of total loans(1)
    3.0 %     2.9 %     2.3 %     4.7 %
Non-performing assets as a percentage of shareholders’ equity(5)
    18.4 %     21.5 %     15.7 %     24.1 %
Non-performing assets as a percentage of shareholders’ equity excluding goodwill(3)(5)
    39.5 %     21.5 %     35.4 %     24.1 %
Liquidity
                               
Total loans, net as a percentage of total funding
    65.3 %     52.9 %     66.0 %     60.7 %
Deposits as a percentage of total funding
    88.9 %     88.7 %     89.5 %     91.3 %
Other Information
                               
Efficiency
                               
Efficiency ratio(7)
    34.7 %     40.8 %     45.0 %     39.2 %

(1)
Six month ratios are presented on an annualized basis by doubling the earnings component. Annualized ratios are not necessarily indicative of the ratios that would result for the entire year, which may be materially different from the annualized ratios.
 
(2)
Net yield is defined as net interest income (including dividends on equity securities) divided by average interest earning assets.
 
(3)
“Adjusted return on average shareholders’ equity,” “Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill” and “Non-performing assets as a percentage of shareholders’ equity excluding goodwill” are non-GAAP financial measurements which adjust “Return on average shareholders’
 
 
 
 
 
 
 
 
 
equity,” “Average shareholders’ equity as a percentage of average total assets” and “Non-performing assets as a percentage of shareholders’ equity”, to exclude the R$27.5 billion goodwill arising from the acquisition of Banco Real in 2008.
 
 
The reconciliation below presents the calculation of these non-GAAP financial measurements from their respective most directly comparable GAAP financial measurements. Such reconciliation was made only for the six months ended June 30, 2009 and the year ended December 31, 2008 because goodwill was not material in the six months ended June 30, 2008 or the year ended December 31, 2007 and, accordingly, the ratios presented are unaffected by the exclusion of goodwill.
 
   
At and for the six months ended June 30, 2009
   
At and for the year ended December 31, 2008
 
Return on average shareholders’ equity:
           
Net income
    2,445,145       2,378,626  
Average shareholders' equity
    50,741,631       23,109,873  
Return on average shareholders’ equity
    9.9 %     10.3 %
Adjusted return on average shareholders’ equity:
               
Net income
    2,445,145       2,378,626  
Average shareholders' equity
    50,741,631       23,109,873  
Average goodwill
    27,289,961       8,924,823  
Average shareholders' equity excluding goodwill
    23,451,670       14,185,050  
Adjusted return on average shareholders’ equity
    21.9 %     16.8 %
Average shareholders’ equity as a percentage of average total assets:
               
Average shareholders' equity
    50,741,631       23,109,873  
Average total assets
    287,974,048       163,621,250  
Average shareholders’ equity as a percentage of average total assets
    17.6 %     14.1 %
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill:
               
Average shareholders' equity
    50,741,631       23,109,873  
Average Goodwill
    27,289,961       8,924,823  
Average shareholders’ equity excluding goodwill
    23,451,670       14,185,050  
Average total assets
    287,974,048       163,621,250  
Average Goodwill
    27,289,961       8,924,823  
Average total assets excluding goodwill
    260,684,087       154,696,427  
Average shareholders’ equity excluding goodwill as a percentage of average total assets excluding goodwill
    9.0 %     9.2 %
Non-performing assets as a percentage of shareholders’ equity:
               
Non-performing assets
    9,430,815       7,730,464  
Shareholders' equity
    51,135,477       49,317,582  
Non-performing assets as a percentage of shareholders’ equity
    18.4 %     15.7 %
Non-performing assets as a percentage of shareholders’ equity excluding goodwill:
               
Non-performing assets
    9,430,815       7,730,464  
Shareholders' equity
    51,135,477       49,317,582  
Goodwill
    27,263,159       27,488,426  
Shareholders' equity excluding goodwill
    23,872,318       21,829,156  
Non-performing assets as a percentage of shareholders’ equity excluding goodwill
    39.5 %     35.4 %

 
Our calculation of these non-GAAP measures may differ from the calculation of similarly titled measures used by other companies. The Bank’s management believes that these non-GAAP financial measures provide useful information to investors given the substantial impact of the R$27.5 billion goodwill arising from the acquisition of Banco Real during the year ended December 31, 2008, which obscures the significance of other factors.
 
 
 
 
 
 
(4)
Excludes goodwill.  Basel capital adequacy ratios for 2008 and 2007 are not comparable due to changes in the calculation of these ratios according to Central Bank requirements.  Basel adequacy ratios for 2009 and 2008 are not comparable due to changes in the calculation of these ratios according to Basel I/Basel II standards.
 
(5)
Non-performing assets include all credits past due by more than 90 days and other doubtful credits.
 
(6)
Computable credit risk is the sum of the face amounts of loans and leases (including non-performing assets), guarantees and documentary credits.
 
(7)
Efficiency ratio is defined as administrative expenses divided by total income. The ratio for the six months ended June 30, 2008 is presented on a pro forma basis. See “Unaudited Pro Forma Consolidated Financial Information”.  
 

Banco Real Combined Income Statement Data
 
   
Banco Real (Combined)
 
   
For the period from January 1 to August 29,
   
For the year ended December 31,
 
   
2008
   
2007
   
2007
 
   
(in millions of R$, except as otherwise indicated)
 
Interest and similar income
    14,007       12,075       19,070  
Interest expense and similar charges
    (6,552 )     (5,211 )     (7,800 )
Net interest income
    7,455       6,864       11,270  
Income from equity instruments
    2       13       18  
Income from companies accounted for by the equity method
    193       137       183  
Fee and commission income
    2,040       1,635       2,525  
Fee and commission expense
    (428 )     (479 )     (762 )
Gain/loss on financial assets and liabilities (net)
    798       870       1,744  
Exchange differences (net)
    (215 )     (153 )     (179 )
Other operating income (expenses)
    (17 )     (146 )     (287 )
Total income
    9,828       8,741       14,512  
Administrative expenses
    (4,347 )     (3,760 )     (6,227 )
Depreciation and amortization
    (288 )     (211 )     (339 )
Provision (net)
    (472 )     (303 )     (928 )
Impairment losses on financial assets (net)
    (2,470 )     (1,838 )     (2,897 )
Impairment losses on other assets (net)
    (8 )     (36 )     (33 )
Gain/(losses) on disposal of assets not classified as non-current assets held for sale
    25       20       28  
Gain/(losses) on non-current assets held for sale
    13       36       38  
Operating profit before taxes
    2,281       2.649       4,154  
Income taxes
    (907 )     (1,115 )     (1,721 )
Profit for the year/period
    1,374       1,534       2,433  
Profit attributable to the Parent
    1,374       1,534       2,432  
Profit attributable to minority interests
                1  
 
 
 
 
Banco Real Combined Balance Sheet Data
 
   
Banco Real (Combined)
 
   
At December 31, 2007
 
   
(in millions of R$)
 
Cash and balances with the Brazilian Central Bank
    10,949  
Financial assets held for trading
    3,396  
Other financial assets at fair value through profit or loss
    147  
Available for sale financial assets
    12,779  
Loans and receivables
    77,310  
Hedging derivatives
    651  
Non-current assets held for sale
    39  
Investments in associates
    333  
Tangible assets
    1,051  
Intangible assets
    1,207  
Tax assets
    3,980  
Other assets
    985  
Total assets
    112,827  
Financial liabilities held for trading
    1,725  
Financial liabilities at amortized cost
    90,672  
Hedging derivatives
    5  
Provisions
    3,443  
Tax liabilities
    2,129  
Other liabilities
    1,695  
Total liabilities
    99,669  
Shareholders’ equity
    13,094  
Issued capital
    9,322  
Reserves
    1,542  
Profit for the year attributable to the Parent
    2,432  
Less: Dividends and remuneration
    (202 )
Valuation adjustments
    59  
Minority interests
    5  
Total equity
    13,158  
Total liabilities and equity
    112,827  

 

 
 
 
 
You should carefully consider the risks described below, as well as the other information in this prospectus, before deciding to purchase our units and ADSs. Our business, results of operations, financial condition or prospects could be adversely affected if any of these risks occurs, and as a result, the market price of our units and the ADSs could decline and you could lose all or part of your investment. The risks described below are those known to us and that we currently believe may materially affect us.
 
Risks Relating to Brazil
 
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazilian political and economic conditions, could adversely affect us and the market price of our securities.
 
The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policies and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition and results of operations, as well as the market price of our securities, may be adversely affected by changes in policies or regulations involving or affecting factors such as:
 
·  
interest rates;
 
·  
exchange rates and controls and restrictions on the movement of capital out of Brazil, such as those which were briefly imposed in 1989 and early 1990;
 
·  
currency fluctuations;
 
·  
inflation;
 
·  
liquidity of the domestic capital and lending markets;
 
·  
tax and regulatory policies; and
 
·  
other political, social and economical developments in or affecting Brazil.
 
Although the Brazilian government has implemented sound economic policies over the last few years, uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and in the securities issued abroad by Brazilian issuers. These uncertainties and other developments in the Brazilian economy may adversely affect us and the market value of our securities.
 
Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our business.
 
Brazil has in the past experienced extremely high rates of inflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world. Inflation and the Brazilian government’s measures to fight it, principally through the Central Bank, have had and may have significant effects on the Brazilian economy and our business. Tight monetary policies with high interest rates and high compulsory deposit requirements may restrict Brazil’s growth and the availability of credit, reduce our loan volumes and increase our loan loss provisions. Conversely, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our interest rate spreads.
 
Since 2001, the Central Bank has frequently adjusted the base interest rate. The Central Bank reduced the base interest rate during the second half of 2003 and the first half of 2004. In order to control inflation, the Central Bank
 
 
 
increased the base interest rate several times from 16.0% per annum on August 18, 2004 to 19.75% per annum on May 18, 2005. During the following two years, favorable macroeconomic figures and controlled inflation within the Central Bank target range led the Central Bank to lower the base interest rate several times from 18.0% in December of 2005 to 11.25% in September of 2007. In April and June of 2008, however, the Central Bank increased the base interest rate by 0.5% respectively, to 12.25%, due to the then macroeconomic conditions and the expectations of inflation in 2008. In June 2009, the Central Bank reduced the base interest rate in order to encourage an increase in the availability of credit and the SELIC rate was lowered to 9.25%.
 
As a bank in Brazil, the vast majority of our income, expenses, assets and liabilities are directly tied to interest rates. Therefore, our results of operations and financial condition are significantly affected by inflation, interest rate fluctuations and related government monetary policies, all of which may materially and adversely affect the growth of the Brazilian economy, our loan portfolios, our cost of funding and our income from credit operations.
 
Exchange rate instability may have a material adverse effect on the Brazilian economy and Santander Brasil.
 
The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching a selling exchange rate of R$3.53 per U.S.$1.00 at the end of 2002. Between 2003 and mid-2008, the real appreciated significantly against the U.S. dollar due to the stabilization of the macro-economic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per U.S.$1.00 in August 2008. In the context of the crisis in the global financial markets since mid-2008, the real depreciated 31.9% against the U.S. dollar in 2008. On June 30, 2009, the exchange rate was R$1.9516 per U.S.$1.00.
 
Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations. Additionally, depreciation of the real could make our foreign currency-linked obligations and funding more expensive, negatively affect the market price of our securities portfolios and have similar consequences for our borrowers. On the other hand, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.
 
Developments and the perception of risk in other countries, especially in the United States and in emerging market countries, may adversely affect our access to financing and the market price of our securities.
 
The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States and other Latin American and emerging market countries. Although economic conditions in those countries may differ significantly from economic conditions in Brazil, investor’s reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging countries may diminish investor interest in securities of Brazilian issuers, including Santander Brasil’s securities. This could adversely affect the market price of our units and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms, or at all. In addition, the global financial crisis has had significant consequences, including in Brazil, such as stock and credit market volatility, unavailability of credit, higher interest rates, a general economic slowdown, volatile exchange rates, among others, which may, directly or indirectly, adversely affect us and the market price of our units or ADSs.
 
Risks Relating to Santander Brasil and the Brazilian Financial Services Industry
 
We are vulnerable to the current disruptions and volatility in the global financial markets as well as to government action intended to alleviate the effects of the recent financial crisis.
 
The global financial markets deteriorated sharply beginning in the second half of 2007, resulting in a prolonged credit and liquidity crisis that has begun to ease following the first quarter of 2009. A number of major financial institutions, including some of the largest global commercial banks, investment banks, mortgage lenders, mortgage
 
 
 
guarantors and insurance companies, experienced significant difficulties. In particular, banks in many markets globally faced decreased liquidity or a complete lack of liquidity, rapid deterioration of financial assets in their balance sheets and resulting decreases in their capital ratios that severely constricted their ability to engage in further lending activity. We routinely transact with such institutions as counterparties in the financial services industry, as well as brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional customers. While the severity of the credit and liquidity crisis has eased in the second quarter of 2009, the financial industry continues to recover from the effects of the crisis. If significant financial counterparties experience ongoing liquidity problems or the financial services industry in general is unable to recover from the effects of the crisis, it could have a material adverse effect on our business, financial condition and results of operations.
 
In addition, the financial condition of our borrowers has, in some instances, been adversely affected by the financial and economic crisis, which has in turn increased our non-performing loans, impair our loans and other financial assets and result in decreased demand for borrowings in general. For example, certain of our customers that are large exporters, suffered significant losses in connection with hedging positions with respect to the U.S. dollar when the real began to decline in value against the U.S. dollar in 2008. These losses could impact such customers’ ability to repay or refinance their debt obligations to us. If our customers fail to perform their obligations under their contracts with us where the customers are counterparty (for instance, derivatives contracts), the failure or inability of our customers to perform their payment obligations under those contracts could have a material adverse effect on us.
 
Despite the extensive government and central bank intervention to prevent the failure of the global financial system, the final impacts of such intervention are unknown. Global investor confidence is only beginning to recover and additional disruption and volatility in the global financial markets could have further negative effects on the Brazilian financial and economic environment. In addition, a prolonged economic downturn would result in a general reduction in business activity and a consequent loss of income. Any such ongoing disruption or reduction in business activity could have an adverse effect on our business, financial condition and results of operations.
 
Changes in regulation may negatively affect us.
 
Brazilian financial markets, including all of our businesses, are subject to extensive and continuous regulatory review by the Brazilian government, principally by the Central Bank and the CVM. We have no control over government regulations, which govern all facets of our operations, including regulations that impose:
 
·  
minimum capital requirements;
 
·  
compulsory deposit and/or reserve requirements;
 
·  
requirements for investments in fixed rate assets;
 
·  
lending limits and other credit restrictions, including compulsory allocations;
 
·  
limits and other restrictions on fees;
 
·  
limits on the amount of interest banks can charge or the period for capitalizing interest;
 
·  
accounting and statistical requirements; and
 
·  
other requirements or limitations in the context of the global financial crisis.
 
The regulatory structure governing Brazilian financial institutions is continuously evolving and the Central Bank has proven to very actively and extensively react to developments in our industry. For example, in early 2008, the Central Bank created a compulsory deposit requirement on interbank deposits from leasing companies and since our leasing company invests most of its available cash in interbank deposits with us, this could have an adverse effect on our cost of funding. Central Bank measures and the amendment of existing laws and regulations or the adoption of new laws or regulations could adversely affect our ability to provide loans, make investments or render certain financial services.
 
 
Our securities and derivative financial instruments are subject to market price and liquidity variations due to changes in economic conditions and may produce material losses.
 
Financial instruments and securities represent a significant amount of our total assets. Any realized or unrealized future gains or losses from these investments or hedging strategies could have a significant impact on our income. These gains and losses, which we account for when we sell or mark-to-market investments in financial instruments, can vary considerably from one period to another. If, for example, we enter into derivatives transactions to protect us against decreases in the value of the real or in interest rates and the real instead increases in value or interest rates increase, we may incur financial losses. We cannot forecast the amount of gains or losses in any future period, and the variations experienced from one period to another, do not necessarily provide a meaningful forward-looking reference point. Gains or losses in our investment portfolio may create volatility in net revenue levels, and we may not earn a return on our consolidated investment portfolio, or on a part of the portfolio in the future. Any losses on our securities and derivative financial instruments could materially and adversely affect our operating income and financial condition. In addition, any decrease in the value of these securities and derivatives portfolios may result in a decrease in our capital ratios, which could impair our ability to engage in lending activity at the levels we currently anticipate.
 
Changes in base interest rates by the Central Bank could adversely affect our results of operations and profitability.
 
The Central Bank’s Monetary Policy Committee (Comitê de Política Monetária do Banco Central – COPOM) establishes the base interest rate for the Brazilian banking system, and uses this rate as an instrument of monetary policy. The base interest rate is the benchmark interest rate payable to holders of some securities issued by the Brazilian government and traded at the Sistema Especial de Liquidação e Custódia, the Special System for Settlement and Custody, or “SELIC”. As of December 31, 2004, 2005, 2006, 2007 and 2008, the basic interest rate was 17.8%, 18.0%, 13.3%, 11.3% and 13.8%, respectively.
 
Since 2001, the Central Bank has frequently adjusted the base interest rate. The Central Bank reduced the base interest rate during the second half of 2003 and the first half of 2004. In order to control inflation, the Central Bank increased the base interest rate several times from 16.0% per annum on August 18, 2004 to 19.75% per annum on May 18, 2005. During the following two years, favorable macroeconomic figures and controlled inflation within the Central Bank target range led the Central Bank to lower the base interest rate several times from 18.0% in December of 2005 to 11.25% in September of 2007. In April and June of 2008, however, the Central Bank increased the base interest rate by 0.5% respectively, to 12.25%, due to the then macroeconomic conditions and the expectations of inflation in 2008. In July 2009, the Central Bank reduced the base interest rate in order to encourage an increase in the availability of credit and the SELIC rate was lowered to 8.75%.
 
Although increases in the base interest rate typically enable us to increase financial margins, such increases could adversely affect our results of operations by, among other effects, reducing demand for our credit and investment products, increasing our cost of funds and increasing the risk of customer default. Decreases in the base interest rate could also adversely affect our results of operations by, among other effects, decreasing the interest income we earn on our interest-earning assets and lowering margins.
 
The increasingly competitive environment and recent consolidations in the Brazilian financial services market may adversely affect our business prospects.
 
The Brazilian financial markets, including the banking, insurance and asset management sectors, are highly competitive. We face significant competition in all of our principal areas of operation from other large Brazilian and international banks, both public and private, and insurance companies. In recent years, the presence of foreign banks and insurance companies in Brazil has grown and competition in the banking and insurance sectors and in markets for specific products has increased.
 
The acquisition of an insurance company or of a bank by one of our competitors would likely increase such competitor’s market share and customer base, and, as a result, we may face heightened competition. An increase in competition may negatively affect our business results and prospects by, among other things:
 
 
·  
limiting our ability to increase our customer base and expand our operations;
 
·  
reducing our profit margins on the banking, insurance, leasing and other services and products we offer; and
 
·  
increasing competition for investment opportunities.
 
We may experience increases in our level of past due loans as our loan portfolio matures.
 
Our loan portfolio has grown substantially in recent years. Any corresponding rise in our level of past due loans may lag behind the rate of loan growth. Rapid loan growth may also reduce our ratio of past due loans to total loans until growth slows or the portfolio becomes more seasoned. This may result in increases in our loan loss provisions, charge-offs and the ratio of past due loans to total loans. In addition, as a result of the increase in our loan portfolio and the described lag in any corresponding rise in our level of past due loans, our historic loan loss experience may not be indicative of our future loan loss experience.
 
Our market, credit and operational risk management policies, procedures and methods may not be fully effective in mitigating our exposure to unidentified or unanticipated risks.
 
Our market and credit risk management techniques and strategies, including our use of value at risk, or “VaR”, and other statistical modeling tools, may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk, including risks that we fail to identify or anticipate. Some of our qualitative tools and metrics for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to arrive at quantifications of our risk exposures. These qualitative tools and metrics may fail to predict future risk exposures. These risk exposures could, for example, arise from factors we did not anticipate or correctly evaluate in our statistical models. This would limit our ability to manage our risks. Our losses thus could be significantly greater than the historical measures indicate. In addition, our quantified modeling does not take all risks into account. Our more qualitative approach to managing those risks could prove insufficient, exposing us to material unanticipated losses. If existing or potential customers believe our risk management is inadequate, they could take their business elsewhere. This could harm our reputation as well as our revenues and profits.
 
In addition, our businesses depend on the ability to process a large number of transactions efficiently and accurately. Losses can result from inadequate personnel, inadequate or failed internal control processes and systems, information systems failures or from external events that interrupt normal business operations. We also face the risk that the design of our controls and procedures for mitigating operational risk proves to be inadequate or is circumvented. We have suffered losses from operational risk in the past and there can be no assurance that we will not suffer material losses from operational risk in the future.
 
We may fail to recognize the contemplated benefits of the acquisition of Banco Real.
 
The value of the units and ADSs could be adversely affected to the extent we fail to realize the benefits we hope to achieve from the integration of Santander and Banco Real, in particular, cost savings and revenue generation arising from integration of the two banks' operations. We may fail to realize these projected cost savings and revenue generation in the time frame we anticipate or at all due to a variety of factors, including our inability to carry out headcount reductions, the implementation of our firm culture and the integration of our back office operations or delays or obstacles in the integration of our information technology platform and operating systems. It is possible that the acquisition could result in the loss of key employees, the disruption of each bank's ongoing business and inconsistencies in standards, controls, procedures and policies and the dilution of brand recognition of the Santander and Banco Real brands. Moreover, the success of the acquisition will at least in part be subject to a number of political, economic and other factors that are beyond our control.
 
If our reserves for future insurance policyholder benefits and claims are inadequate, we may be required to increase our reserves, which would adversely affect our results of operations and financial condition.
 
Our insurance companies establish and carry reserves to pay future insurance policyholder benefits and claims. Our reserves do not represent an exact calculation of liability, but rather are actuarial or statistical estimates based on
 
 
models that include many assumptions and projections which are inherently uncertain and involve the exercise of significant judgment, including as to the levels of and/or timing of receipt or payment of premiums, benefits, claims, expenses, interest credits, investment results, retirement, mortality, morbidity and persistency. We cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits, claims and expenses or whether the assets supporting our insurance policy liabilities, together with future premiums, will be sufficient for payment of benefits and claims. If we conclude that our reserves, together with future premiums, are insufficient to cover future insurance policy benefits and claims, we would be required to increase our reserves in connection with our insurance business and incur income statement charges for the period in which we make the determination, which would adversely affect our results of operations and financial condition.
 
The profitability of our insurance operations may decline if mortality rates, morbidity rates or persistency rates differ significantly from our pricing expectations.
 
We set prices for many of our insurance and annuity products based upon expected claims and payment patterns, using assumptions for mortality rates, or likelihood of death, and morbidity rates, or likelihood of sickness, of our insurance policyholders. In addition to the potential effect of natural or man-made disasters, significant changes in mortality or morbidity could emerge gradually over time, due to changes in the natural environment, the health habits of the insured population, treatment patterns for disease or disability, or other factors. Pricing of our insurance and deferred annuity products is also based in part upon expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next. Results may also vary based on differences between actual and expected premium deposits and withdrawals for these products. Significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our insurance products. Although some of our insurance products permit us to increase premiums or adjust other charges and credits during the life of the policy or contract, the adjustments permitted under the terms of the policies or contracts may not be sufficient to maintain profitability. Many of our insurance products do not permit us to increase premiums or adjust other charges and credits or limit those adjustments during the life of the policy or contract.
 
Our controlling shareholder has a great deal of influence over our business.
 
Following the offering, Santander Spain, our controlling shareholder, will continue to own, indirectly, approximately    % of our common shares,     % of our preferred shares and     % of our total capital. Due to its share ownership, our controlling shareholder has the power to control us and our subsidiaries, including the power to:
 
·  
elect a majority of our directors and appoint our executive officers, set our management policies and exercise overall control over our company and subsidiaries;
 
·  
agree to sell or otherwise transfer its controlling stake in our company; and
 
·  
determine the outcome of substantially all actions requiring shareholder approval, including transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends.
 
The interests of Santander Spain may differ from our interests or those of our other shareholders and the concentration of control in Santander Spain will limit other shareholders’ ability to influence corporate matters. As a result, we may take actions that our other shareholders do not view as beneficial, which may adversely affect our results of operations and financial condition.
 
Risks Relating to Our Units and ADSs
 
Until the Central Bank ratifies our capital increase in connection with this offering, the units will represent subscription receipts, common and preferred shares and not only our common and preferred shares. We cannot provide assurance as to when or if the Central Bank will ratify our capital increase.
 
Our capital increase must be ratified by the Central Bank in order for the units to represent our common and preferred shares. A capital increase for a financial institution is subject to the deposit of
 
 
 
government bonds corresponding to the amount of the capital increase with the Central Bank, as well as to the presentation of certain information and documents to the Central Bank. As a result, the ratification of the capital increase for financial institutions occurs after confirmation by the Central Bank that the applicable requirements have been met and applicable banking rules do not require that the Central Bank make its determination within a specified period of time. We have no means of determining when the subscription receipts that will initially underlie the units will be converted into our common and preferred shares.
 
In the context of this offering, each unit will, until the approval of our capital increase by the Central Bank, represent 47.83 subscription receipts of common shares, 7.17 common shares, 43.48 subscription receipts of preferred shares and 6.52 preferred shares. Until the capital increase is ratified by the Central Bank, investors can only exercise voting rights, if applicable, on the whole number of shares held by them. Subscription receipts, which underlie the units, are not entitled to receive dividends or interest on shareholders’ equity paid in respect of our shares, and not entitled to exercise voting rights. Subscription receipts entitle their holders to receive common and preferred shares, only upon Central Bank ratification. See “Description of Capital Stock”.
 
In the event that the Central Bank does not approve the capital increase within six months from the closing of this offering, one of our shareholders has agreed to deliver to each record holder of units as of the date of delivery, free of charge, a fraction of a preferred share and a fraction of a common share such that the aggregate numbers of common and preferred shares represented by all units held of record by that holder plus such fractions of shares make up whole numbers of preferred and common shares.  For example, a record holder of two units (representing receipts plus 14.34 common shares and 13.04 preferred shares) would receive 0.66 common shares and 0.96 preferred shares.  In addition, the capital increase corresponding to the subscription receipts would be cancelled and amounts in respect of such subscription receipts equal to the amount paid for such receipts in this offering would be distributed to the then-current investors.  If the market price for units at the time of any such distribution is higher than the public offering price, such amounts will be correspondingly less than the then-implied market value of the receipts.
 
Cancellation of units may have a material and adverse effect on the market for the units and on the value of the units.
 
Pursuant to the terms of the custody, issuance and registration agreement between us and                , holders of units may present units for cancellation in Brazil in exchange for the common shares and preferred shares underlying these units. If unit holders present a significant number of units for cancellation in exchange for the underlying common shares and preferred shares, the liquidity and price of the units may be materially and adversely affected.
 
The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of the units and the ADSs.
 
Although the Brazilian equity market is the largest in Latin America in terms of capitalization, it is smaller and less liquid than the major U.S. and European securities markets. The BM&FBOVESPA is significantly less liquid than the New York Stock Exchange, or the NYSE, or other major exchanges in the world. As of December 31, 2008, the aggregate market capitalization of the BM&FBOVESPA was equivalent to approximately R$1,375.3 billion (U.S.$588.5 billion) and the top ten stocks in terms of trading volume accounted for approximately 53.1% of all shares traded on BM&FBOVESPA in the year ended December 31, 2008. In contrast, as of December 31, 2008, the aggregate market capitalization of the NYSE was approximately U.S.$9.2 trillion. Although any of the outstanding shares of a listed company may trade on the BM&FBOVESPA, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, government entities or a principal shareholder. The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the units or ADSs at the time and price you desire and, as a result, could negatively impact the market price of these securities.
 
The price of our units and ADSs is subject to volatility.
 
Before this offering, no public market for our units and ADSs has existed in Brazil and the United States, respectively. The initial public offering price for our units and ADSs will be determined by negotiations between us and the representatives of the international underwriters. The market price for our ADSs may fall below the initial public offering price. The market price of our ADSs could be subject to significant fluctuations due to a variety of factors, including actual or anticipated fluctuations in our operating results and financial performance, economic downturns, political events in the jurisdictions where we operate or other changes in our industries, changes in
 
 
financial estimates by securities analysts, the introduction of new products or technologies by us or our competitors, or our failure to meet expectations of analysts or investors.
 
Actual or anticipated sales of a substantial number of units or our common shares or preferred shares in the future could decrease the market prices of the ADSs.
 
Sales of a substantial number of our units or our common shares or preferred shares after the completion of the global offering, or the anticipation of such sales, could negatively affect the market prices of the ADSs. Immediately after completion of the global offering, Santander Spain will, directly or indirectly, own approximately                     common shares and                     preferred shares in the aggregate. Subject to some exceptions, we have agreed not to offer, sell or contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC, or the CVM a registration statement relating to, any additional units or ADSs or securities convertible into or exchangeable or exercisable for any shares of our share capital or ADSs, or publicly disclose any such offer, sale, pledge disposition or filing, for a period of 180 days after the date of this prospectus, without the prior written consent of              , on behalf of the international and Brazilian underwriters. Our directors, executive officers and our parent company have agreed to substantially similar lock-up provisions, subject to certain exceptions. In connection with our listing on the BM&FBOVESPA, our parent company will need to sell additional shares prior to the              anniversary after the date of this prospectus to ensure that the public float represents at least 25 percent of our total capital.  If, in the future, substantial sales of units or common shares or preferred shares are made by existing or future holders, the market prices of the ADSs may decrease significantly. As a result, holders of ADSs may not be able to sell their ADSs at or above the price they paid for them.
 
The economic value of your investment may be diluted.
 
The estimated initial public offering price of our ADSs is higher than the net tangible book value per unit of our ADSs immediately prior to the offering. If you purchase ADSs in this offering, you will experience immediate and substantial dilution in the net tangible book value per unit from the public offering price. See “Dilution”. In addition, we may need additional funds and, in the case public or private financing is unavailable or if our shareholders decide, we may issue additional units or shares. Any additional funds obtained by such a capital increase may dilute your interest in our company.
 
Delisting of our shar